Cryptocurrencies are digital forms of money intended for purchasing items and services, much like traditional currencies. Yet, they’ve sparked controversy because they operate without intermediaries like banks or central authorities, relying on decentralization. Currently, there are over 1,500 virtual currencies, including Bitcoin, Ethereum, Litecoin, Dogecoin, Ripple, and Matic, among others, actively traded in the digital currency realm. The investment and trading volumes of cryptocurrencies have surged significantly.
Cryptocurrencies and NFTs (Non-Fungible Tokens) were classified under the umbrella term “Virtual Digital Assets,” and the Income Tax Act was amended to include Section 2(47A) to explicitly define this category.
The question that arises in everyone’s mind is whether it is taxable in India. The answer is yes; gains from cryptocurrency are taxable in India. The government’s official stance on cryptocurrencies and other VDAs was clarified in the 2022 Budget.
How is Cryptocurrency taxed in India?
In India, cryptocurrencies are classified as virtual digital assets and are subject to taxation. Gains from trading cryptocurrencies are taxed at a rate of 30% (plus 4% cess) according to Section 115BBH. Section 194S levies 1% Tax Deducted at Source (TDS) on the transfer of crypto assets starting from July 01, 2022, if the transactions exceed Rs 50,000 (or even Rs 10,000 in some cases) within the same financial year. The crypto tax applies to all investors, whether private or commercial, who transfer digital assets during the year. The tax rate remains consistent for both short-term and long-term gains, applying to all types of income earned by the investor.
Can Losses be Offset Against Income?
As per Section 115BBH, any losses incurred in crypto cannot be offset against any income, including gains from cryptocurrency. Therefore, a crypto investor cannot offset losses from a previous year’s crypto asset against their income while filing Income Tax Returns (ITR) in the current year.
Furthermore, Indian investors engaged in cryptocurrency transactions are not allowed to claim expenses related to their crypto activities, except for the acquisition or purchase cost.
For instance, suppose Mr X purchased Bitcoins worth Rs 60,000 and later sold them for Rs 80,000. Additionally, he bought Ethereum for Rs 40,000 and sold them for Rs 30,000. During these transactions, the exchange charged a trading fee of Rs 1,000. The tax on both these transactions shall be computed as follows:
|Buy (in Rs)
|Sell (in Rs)
|Net Profit or (Loss)
|Total Taxable Amount
Is It Mandatory to Disclose Crypto Assets?
The Ministry of Corporate Affairs (MCA) now requires companies to disclose gains, losses, and the value of cryptocurrency on their balance sheets, starting from April 1, 2021. This mandate applies solely to companies and does not impose such obligations on individual taxpayers. Nonetheless, all individuals are required to report and pay taxes on gains from cryptocurrency transactions.
Are Crypto Gifts Taxable?
The tax treatment for gifts varies based on whether they consist of money, immovable property, or movable property. In the Budget 2022, Virtual Digital Assets (VDAs) were categorized under movable properties. Consequently, crypto gifts received are taxed as ‘income from other sources’ at regular slab rates if the total value of gifts exceeds Rs 50,000.
Cryptocurrencies can be gifted through methods such as gift cards, crypto tokens, or crypto paper wallets. If the crypto gift is received from a relative, it is tax-exempt. However, if the value of the crypto gift from a non-relative surpasses Rs 50,000, it becomes taxable. Gifts received on special occasions, through inheritance or will, marriage, or in contemplation of death, remain exempt from taxes.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.